This papers examines whether the financial distress pricing puzzle observed for non-financial firms is also observed for financial firms and how this puzzle differs according to the extent of short sale constraints. By using the eight distress measures developed for financial firms, we find that...

Before the 2008 crisis, the cross-sectional skewness of banks' leverage went up and macro risk concentrated in the balance sheets of large banks. Using a model of profit-maximizing banks with heterogeneous Value-at-Risk constraints, we extract the distribution of banks' risk-taking parameters...